Is the Tesla (NASDAQ:TSLA) tumble finally over? That’s what many are asking, following the recent big rebound in Tesla stock, following potentially groundbreaking news regarding the EV maker’s efforts to develop and commercialize its driver-assistance technology.
TSLA was already bouncing back prior to this announcement, but after the stock’s April 29 rally, it has surged back towards the $200 per share price level. However, it’s up for debate whether such a rapid move higher on this news is justified.
While indeed a positive for the company’s future prospects, it’s not likely to have an immediate impact on operating results. In the meantime, the issues affecting Tesla’s fiscal and stock price performance in recent quarters have not gone away.
For those banking that the rebound will continue, beware. There is a high risk that this rally proves short-lived.
Tesla Stock China FSD Rally: An Overreaction?
Last weekend, Tesla CEO Elon Musk flew to China, in order to garner regulatory approval to offer the company’s Full Self Driving (FSD) driver-assistance technology to Chinese Tesla buyers. Less than a day after landing in Beijing, Musk got what he wanted.
The market perceives FSD availability as something that could reverse weak demand trends for Tesla in what is the world’s largest EV market. Hence, it’s no surprise that Tesla stock experienced a very strong rally once this development was disseminated around the world.
Still, following its more than 15% climb higher on this news, Wells Fargo’s Colin Langan is ringing the alarm bells, arguing that this rally is an overreaction. In Langan’s bearish response to the China FSD rally, the analyst points out that many of the details of this regulatory approval have yet to be revealed.
Furthermore, rival Chinese EV makers have also rolled out advanced driver-assistance technology. Any sort of competitive edge from rolling out FSD in China may fall short of current expectations. All bets are off whether this latest TSLA rally continues in the coming trading days, but there are many continued challenges that may put shares back on a downward trajectory.
Lower-Priced Vehicle Launch: Another Possible Overreaction
As mentioned above, Tesla stock was already trending up when the FSD news broke. This was due to the company’s release of its latest quarterly results on April 23. Earnings fell short of forecasts, and represented a steep decline compared to the prior year’s quarter.
However, news of Tesla’s plans to speed up its rollout of lower-priced vehicles countered this earnings miss. The automaker aims to begin selling these vehicles in early 2025 rather than late 2025. As I have argued in prior coverage of TSLA, lower-priced Teslas could be key to getting the company back into high-growth mode.
Yet even as it’s now more possible that a Tesla growth resurgence arrives in 2025 rather than 2026 or 2027, there are few other uncertainties surrounding whether the launch of lower-priced vehicles will translate into a growth bonanza.
Other headwinds limiting EV market growth, like high interest rates and a lack of progress in extending EV range, may persist through 2025. In the nearer-term, these issues, as well as other existing issues like high competition in China, could continue to weigh on growth and margins. After the latest spate of good news, these negative factors may come back into focus.
The Verdict: Wait for Re-Entry
Don’t get me wrong. Once the current rough patch in U.S. and Chinese EV demand eases, Tesla could get back to full charge. A resumption of sales and earnings growth, coupled with progress with its autonomous driving and robotaxi efforts, may just well drive an ultimate comeback for this “Magnificent Seven” stock.
However, before TSLA comes close to re-hitting $300 or even $400 per share, investor sentiment could temporarily shift back to bearish. A re-assessment of the China FSD news, plus further negative news about near-term demand, could drive this. While not certain, another round of turbulence could knock shares back down to their 52-week low.
With this in mind, even if you’re bullish on a Tesla stock comeback, now is not the time to buy or hold. Sell into strength if you own it, stay away if you don’t, and wait for re-entry.
On the date of publication, Thomas Niel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
